The price of goods is expected to increase by 1% as an effect of GST. Economist Dr Yeah Kim Leng explains the increase and the reason behind the implementation of GST.

Three days ago Prime Minister Najib Tun Razak unveiled the much anticipated (and feared!) Budget 2014. As many predicted (though secretly wished to be proven wrong) the Goods and Services Tax ( GST) was implemented. The GST at a rate of 6% will come into effect on April 1st 2015 replacing the current Sales Tax and Services Tax (SST) which stood at 10% for Sales and 6% for Service. RAM Holdings Group Chief Economist Dr Yeah Kim Leng predicts that it will cause the prices of goods to increase by 1%. This is because the SST is not charged on as many goods and services as the GST.

However, Dr Yeah also believes that the current low inflation environment would likely enable consumers to absorb the price increase. Despite many quarters lamenting the sudden imposition of GST at the high rate of 6%, Dr Yeah believes it to be better in the long run:

"If the Government had set a lower GST rate and increased it in
stages over the years, it would cause inflation to spiral upwards,"

“It is good that you have a one-off range that you
can hold constant for at least 2 to 3 years, because if you do it on a
staggered basis, it would create an inflation spiral. This is because
there is an expectation of price increase, and that would create higher
inflation,”

“For the Government to rely on GST as a stable source of revenue, the
rate will need to be progressively raised over time. It could be
increased to 8% after the first three years and to 10% three years
later.

It would appear that whilst economists are looking toward the bigger
picture of improving the country's fiscal rating, they have forgotten a
large portion of the population who can be forgiven for not rejoicing at the prospect of a better economic outlook at the cost of GST: these are the masses who
struggle simply to put food on the table with salaries that aren't
increasing in tandem with the nation's inflation.

“Even with the exemption of the GST for essential goods, the poor, who
spend most of their income on food, will suffer,” said (RAM Holdings Group) president SM
Mohamed Idris.

*Picture courtesy of Sharonperry.ca

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